EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Tax Aspects of Connecticut's Push for MUSH Energy Program

Introduction

The State of Connecticut is aggressively moving forward to drive
down energy costs in their state's government building sector as
part of the state's MUSH building categories initiative: Municipal
buildings, Universities, Schools, and Hospitals. In late 2011,
Connecticut's electric distribution companies came together to file
the 2012 Conservation and Load Management Plan with the state's
Department of Energy and Environmental Protection. The proliferation
of this Plan, along with several other laws, technological
advancements, and macroeconomic developments are going to make it
highly advantageous for government building in the MUSH categories
to retrofit their buildings with energy-efficient lighting, HVAC,
and building envelope equipment.

This article 1. Describes the tax benefits related to achieving
energy-efficient government buildings design; 2. Describes the
comprehensive approach taken by Connecticut; and 3. Defines the MUSH
building categories and describes the tax incentives specifically
available to them.

The EPAct Section 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, designers of
energy-efficient MUSH projects making qualifying energy-reducing
investments at new or existing government properties can obtain
immediate tax deductions of up to $1.80 per square foot. This
federal tax incentive is awarded for catching the largest economic
driver of the project, namely decreased energy costs, through their
energy-efficient design techniques, which inures to the benefit of
the Connecticut state government.

If the building project doesn't qualify for the maximum EPAct
Section 179D $1.80 per square foot immediate tax deduction, there
are tax deductions of up to $0.60 per square foot for each of the
three major building subsystems: lighting, HVAC (heating,
ventilating, and air conditioning), and the building envelope. The
building envelope is every item on the building’s exterior perimeter
that touches the outside world including roof, walls, insulation,
doors, windows and foundation.

Connecticut's MUSH Push for Increased Energy Efficiency

The Energy Efficiency Board of Connecticut, working in conjunction
with DEEP, the Public Utilities Regulatory Authority, and many
utilities in the state promulgated their 2012 Plan with the explicit
goal of cutting costs and reducing energy use in the state. The
programs created by the Plan will provide utility bill savings for
customers and economic, environmental, and jobs benefits to meet
Connecticut’s policy objectives. The electric and natural gas
programs are aimed at capturing opportunities for reducing energy
bills and providing other benefits through a wide range of
strategies . For instance, the Plan utilizes an Increased Savings
Scenario that will help the state reach significantly higher energy
savings and benefits. By some estimates, the Scenario will provide
annual electric savings equivalent to 2.1% of retail sales, natural
gas savings equivalent to 0.7% of retail sales, additional fuel oil
and other fuel savings, plus over $800 million in benefits.

A touchstone of the plan that will bear directly on energy
efficiency is the $253 million in ratepayer funding that will
support and leverage about $500 million of customer energy
efficiency projects in 2012 alone. Another goal outlined in the plan
is for all state facilities to pay for and install a benchmarking
software that provides a dashboard for monitoring energy usage. The
effect of benchmarking in jurisdictions have previously passed
similar requirements has been to simulate increased funding in
energy efficiency .

MUSH: Municipal Buildings, Universities, Schools, and Hospitals

The MUSH categories of buildings that are eligible for major EPAct
tax savings are outlined below:

Municipal

The typical buildings in this category include: 1. City/Town/Village
Halls; 2. Parking Garages ; 3. Police Stations; 4. Firehouses; 5.
Libraries; and 6. Transportation/ Highway/Sanitation/Maintenance
Departments along with other local government support structures.

State Universities

This building category typically involves large central and regional
campuses with a wide range of facilities, including academic,
laboratories, libraries, athletic facilities, student unions, health
care facilities, maintenance facilities, parking garages and other
facilities. From a state government perspective, state universities
and community colleges are the biggest government building EPAct
category

Schools

Government-run K-12 Schools include High schools, Middle Schools,
Elementary schools and Vocational Schools. K-12 schools are the
largest overall government building EPAct category since there is a
K-12 public school in virtually every community in the United
States.

Hospitals

Building in this category include State, County and city-owned
facilities . Because these facilities are often especially
energy-intensive, hospitals present a great opportunity for
Connecticut's state and local governments to simultaneously realize
large tax savings and energy cost savings .

Energy Savings Measures for MUSH Buildings

One of the easiest ways for the MUSH buildings to achieve energy
savings is to upgrade to energy-efficient lighting (which is
increasingly LED's) particularly in certain building categories. For
example, many of the municipal building categories are characterized
by small spaces, including offices where LED lighting is
advantageous. Long-life LED's should also be considered in any
difficult-to-reach spaces where ongoing replacement is expensive.
It's important to replace all federally banned probe start metal
halide lighting typically found in parking garages maintenance
buildings, vehicle garages, gyms and athletic facilities. In sum,
new low wattage LED's fit perfectly into Connecticut's plans for the
state's energy reduction.

One of the largest costs for human-occupied government buildings is
HVAC. Many government buildings were originally constructed on
first-cost bid basis, meaning the lower bidders who used lower cost,
less energy-efficient equipment got the job. As result of new, more
rigorous building energy codes and technology improvements much more
energy-efficient HVAC is now available and often mandated. Many of
these new HVAC technologies will qualify for EPAct .

Conclusion

The following quote is taken directly from the language of the 2012
Plan: "A stated goal of the Malloy administration is to make
Connecticut the leading state in energy efficiency. To achieve this
ambitious outcome, the current program offerings will need to be
expanded significantly. In addition, private capital will need to be
leveraged to deliver savings of the scale required to put
Connecticut in the lead. This chapter builds upon the base plan
detailed in previous chapters with a framework of modifications
needed to begin the process of accelerating savings to achieve the
stated policy objectives." Fortunately, Connecticut's objectives
align neatly with the federal government's EPAct government building
designer tax incentives.